Buying a home for your parents, or for your adult child
A home you buy for someone else to live in is normally financed as an investment property. Conventional guidelines make an exception for family, and it works in both directions. This covers when the exception applies, what to do when it does not, and how family can help with the loan or the down payment.
Every mortgage is priced by how the home will be used. A home you live in gets the best rate, the lowest down payment and the lightest mortgage insurance. A home someone else lives in is usually an investment property: a higher rate, and at least 15% down on a conventional single-family purchase. The categories and why they matter are in what occupancy means on your mortgage.
Buying for a parent or an adult child falls between those two, and the guidelines have two ways to handle it.
The family exception, in both directions
Conventional guidelines treat you as the owner-occupant of a home you do not live in, in two family situations:
- A child buying for a parent, when the parent is unable to work or does not have enough income to qualify for a mortgage on their own.
- A parent or legal guardian buying for a child, when the child is unable to work or does not have enough income to qualify for a mortgage on their own. This is the case of an adult child with a disability.
When it applies, the loan is priced, sized and insured as a principal residence, even though you live somewhere else. On a conventional single-family home that means a down payment from 5% instead of 15%, and principal-residence mortgage insurance instead of investment-property pricing.
You may see this marketed as a Family Opportunity Mortgage. That is a sales name, not a separate loan program. It is one paragraph in the conventional occupancy rules.
The test is about the family member, not about you. A retired parent on a fixed income that would not carry a mortgage fits. A parent with a solid salary who simply prefers not to borrow does not, and that case is covered in the section after next.
You still qualify carrying both homes
The exception changes how the new home is priced. It does not change how much you can afford. Your own housing payment stays in your debt-to-income ratio, and the new payment is added to it. An example, with round numbers:
| Monthly | Amount |
|---|---|
| Your gross income | $12,000 |
| Your own home, full payment | $3,000 |
| Parent’s home, full payment | $2,200 |
| Car loan and cards | $600 |
| Debt-to-income | 48.3% |
Conventional loans approved through Fannie Mae’s automated system can go as high as 50% when the rest of the file supports it, so this one can work, but with little room. Your parent’s income does not help here unless they are also a borrower. How the ratio is built is in debt-to-income, explained.
When the exception does not apply: put the person who lives there on the loan
Conventional guidelines require only one borrower to occupy the home and take title. So if your parent could qualify alone, or the exception does not fit for another reason, the parent who will live there can become a borrower with you. Because one borrower occupies it, it is a principal residence. The same works the other way, for example a parent buying near campus with a college-student child on the loan who lives there.
That route carries obligations of its own:
- They sign the note and go on title. They are a full borrower, not a name on an occupancy form.
- Their credit is on the file. A thin credit history, a recent late payment or a student loan payment affects the approval, and can affect pricing. Pull both credit reports before deciding which structure to use.
- If your income is what qualifies, the rules for a borrower who does not live in the home apply. They are in the next section.
- They have to live there. The mortgage itself commits the occupant to moving in within 60 days of closing and keeping it as their main home for at least a year. A parent who moves in, or a student who lives there while in school, fits. A name added to make the paperwork work does not, and that is occupancy fraud.
Family on the loan who will not live there
The more familiar version: a parent co-signs so an adult child can buy, or an adult child co-signs for a parent. The co-signer is a non-occupant borrower. They sign the note, they are fully liable for the debt, and they may or may not go on title. The rules depend on how the loan is underwritten:
| Rule | Automated approval | Manual underwriting |
|---|---|---|
| Whose income counts | All borrowers, together | Debt-to-income uses the occupant’s income only, maximum 43% |
| Maximum loan-to-value | 95% | 90% |
| Occupant’s own money | No separate minimum | Above 80% loan-to-value, with the co-signer’s income used, the first 5% of the down payment comes from the occupant |
Most files go through automated approval. The co-signer should also know the payment can count against them later. When they apply for their own loan, a co-signed mortgage is generally left out of their ratio only when the person living there has made every payment for the most recent 12 months and it can be documented.
Parents who live abroad
Every borrower on a conventional loan has to be a U.S. citizen or lawfully living in the U.S., as a permanent or non-permanent resident. Parents who are not U.S. citizens and live outside the country cannot be co-borrowers.
They can give. Gift money from abroad needs to be converted to dollars and in a U.S. account, with the transfer documented, before closing. There is no seasoning period. More on buying on a work visa is on the H1B mortgage page.
Gifts from family
Relatives can give some or all of the down payment and closing costs on a conventional loan. How much has to come from your own funds depends on the home:
- Single-family home you will live in: no minimum from you. The whole amount can be a gift.
- 2–4 unit home you will live in, above 80% loan-to-value: the first 5% comes from your own funds, then gifts. At 80% or below, no minimum.
The gift letter states the amount, that no repayment is expected, and the donor’s name, address, phone number and relationship to you. The transfer itself needs a paper trail. The details are in large deposits and gift funds, and the multi-unit rules in buying a 2–4 unit home you will live in.
Title, homestead and taxes
Whose name is on title matters beyond the loan. In Florida, Pennsylvania and Texas the homestead tax break is for the owner’s primary residence, so a home you own and your parent lives in may not qualify in your name, and adding the parent to title can change that. Ask the county before closing, and see property tax exemptions for how each state works. Gift tax, capital gains and how to hold title among family are questions for your CPA or attorney.
What decides it on your file
- Who will live there, and whether they could qualify for a mortgage on their own. That decides whether the family exception applies.
- Your full monthly picture, with both housing payments in it.
- Their credit, if they may go on the loan.
- Where the down payment comes from, and whose name goes on title.
When more than one structure is open, I would price each one, with the family member on the loan and without, and look at the rate, the down payment and the title together before you choose.
General information about conventional mortgage guidelines, not a commitment to lend. Individual lenders may apply requirements stricter than the agency rules described, and FHA, VA and other programs have their own occupancy rules. The debt-to-income example uses round numbers for illustration only. This is not tax or legal advice. Forest Hills Mortgage LLC, NMLS #1982611. Matt Mergo, NMLS #563819. Licensed in Florida, Pennsylvania and Texas. Equal Housing Opportunity.
Buying for family? Let’s set it up the right way.
Tell me who will live there, whose income qualifies and where the down payment is coming from. I will show you which structures fit and what each one costs.